Legal Updates

Maintaining legal privilege over your documents

It is a fundamental principle of the English legal system that certain documents recording legal advice or prepared for the purpose of anticipated legal proceedings are inadmissible as evidence in Court proceedings. Such communications are protected by what is known as legal privilege.

The policy behind this rule is that parties ought to have the freedom to discuss legal and commercial issues freely with their legal advisers and prepare for legal claims without concern that those discussions may one day be reviewed by a Judge and influence the outcome of a Court claim. Documents which are not protected by legal privilege but which are relevant to a claim are likely to be disclosable in legal proceedings (even if otherwise confidential).

There are two main types of legal privilege. First is the legal privilege that attaches to communications between a party and its lawyers on legal matters irrespective of whether a legal claim is anticipated at the time. An example would be the legal advice a company receives when it purchases a business. This is known as legal advice privilege, and only arises where one of the parties to the communication is a lawyer. The other type of privilege, known as litigation privilege, protects documents produced in anticipation of and for the dominant purpose of defending or bringing legal proceedings. The key difference between litigation and legal advice privilege is that there is no need for a lawyer to be involved for litigation privilege to arise.

The recent case of Starbev GP Ltd v Interbrew Central European Holding BV [2013] EWCH 4038 provides a timely reminder of the test that the Courts will apply when deciding whether a document or class of documents is protected by litigation privilege, where lawyers were not involved in the communications.

The claim concerned the entitlement of Interbrew Central European Holdings BV (“Interbrew”) to additional payments from Starbev GP, a private equity fund to whom they had sold their brewery business. Under the terms of the sale agreement, in the event Starbev resold the brewery business, Interbrew might become due further payments. Where this happened, the sale agreement entitled Interbrew to appoint independent accountants to verify whether any further payments were due. This duly happened, and when the parties subsequently fell into dispute over the additional payments due to Interbrew, Starbev sought disclosure of the documents prepared by Interbrew’s accountants who had been appointed to verify the figures pursuant to Interbrew’s rights under the sale agreement.

Since the investigation had been undertaken by accountants, rather than lawyers, this was not a case where legal advice privilege could arise. It was necessary, therefore, for Interbrew to establish that the documents were protected by litigation privilege if they wanted to resist the disclosure request, and this was contested by Starbev.

The judge rejected Interbrew’s claim of privilege and provided a helpful review of the test applied by the Court.

The burden falls upon the party claiming litigation privilege to establish that this has arisen. The Court will scrutinise the reasons given very carefully

The party needs to establish that litigation was in contemplation at the time the document was produced. It is not enough to show that litigation was a mere possibility. Although there need not be a greater than 50% chance of litigation, it must be more than a mere possibility

The party also needs to establish that the document was created for the “dominant purpose” of either enabling legal advice to be obtained or to obtain information or evidence for use in anticipated legal proceedings. Where documents are created for a number of purposes, they will only be privileged if the “dominant purpose” is the litigation

On the facts of this case, the Judge held that at the time the accountant’s report was commissioned, litigation was not reasonably anticipated (it was a mere possibility at the time) nor was it for the dominant purpose of the litigation. Notably, the accountants’ retainer with Interbrew did not specifically mention litigation. The accountants’ report was found to be investigatory in the sense of determining what additional payment could be due to Interbrew, not prepared for the dominant purpose of a future legal dispute with Starbev over the payments due.

What this case underlines is that any report or correspondence which is not produced by a lawyer will need to satisfy the additional tests of litigation privilege to avoid being disclosable. It is obviously not always practical or cost-effective to involve lawyers whenever a fact finding investigation of this nature is undertaken before litigation is anticipated. However, where there is a possibility of litigation, such communications can be privileged if lawyers are involved in preparing the report, and this issue ought to be considered when the report is commissioned, depending on the importance and value of the issue.

Clarkslegal, specialist Dispute Resolution lawyers in London, Reading and throughout the Thames Valley.

For further information about this or any other Dispute Resolution matter please contact Clarkslegal's dispute resolution team by email at disputeresolution@clarkslegal.com by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.

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This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.